China and U.S. Commence Trade Talks with $14 Billion in Deals, but Loose Ends Remain

By Jason SimpkinsAssociate Editor

The United States and China got their fourth round of economic dialogue off to a good start yesterday (Tuesday), with the announcement of $14 billion in business deals. However, several points of tension ranging from currency devaluation to investment restrictions must still be resolved.

Two delegations, one led by U.S. Treasury Secretary Henry Paulson and the other by Chinese Deputy Prime Minister Wang Qishan, met in Annapolis, Md. yesterday, kicking off a two-day summit set to ease tension and enhance cooperation between the two countries.

The announcement of about $14 billion in business deals got the ball rolling on a positive note late Monday. U.S. and Chinese companies blanketed 11 sectors with 35 business deals on the eve of the high-level talks. The total value of investment agreements was more than $8.3 billion, the Chinese Commerce Ministry said in a statement.

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That includes an $800 million agreement with Ford Motor Co. (F) that includes the sale of more than 30,000 North American-made vehicles starting in 2009, and a framework pact with General Motors (GM) for the sale of approximately $1 billion in vehicles, components, machinery and equipment.

The hope is that more than a number of multi-million dollar deals will come from this week's discussion. Optimally, both sides would like something of an economic truce that would pave the way for more transparent interactions and greater investment opportunities between East and West.

The story is different in rapidly growing emerging markets such as China, which has quickly become the world's second largest oil importer in the world. There, countries either have no accurate system in terms of measuring and collecting the required data, or refuse to divulge what information they do have for strategic reasons.

According to Lopez, China has been amassing a strategic stockpile of oil for years, but has never acknowledged it. That means if he, or any other analysts, underestimate how much oil China is hording, they are inadvertently overestimating global consumption. And if they are overestimating how much oil China sets aside, they are underestimating the level of global consumption.

"There is a natural overlap of interest between countries that are major importers of oil," said Paulson, who will use this week's meetings as an opportunity to urge China to come clean on its reserves.

"[We will] look at the ways in which we can and should cooperate," Paulson said. "Coordinating our strategic petroleum reserves, working with the International Energy Agency and among ourselves for more transparency."

No doubt, the United States would also like assurance that Chinese authorities are not stockpiling oil as a means of manipulating price now or in the future.

On the Other Side of the Table

The Chinese delegation will no doubt have a few complaints of its own, many of which will sound strangely familiar to Secretary Paulson.

On several occasions the United States has chided the Chinese for not allowing their currency, the yuan, to appreciate. But the yuan has risen 20% against the U.S. dollar in the past three years, while the dollar has tumbled into a freefall against the world's major currencies. Now, it is China's turn to tread on an eviscerated greenback that has been widely blamed for soaring food and energy prices.

Also, while the United States has complained about barriers to foreign investment in China that favor the nation's domestic companies, Chinese investment has been particularly welcome in the United States.

A Chinese commission submitted a scathing critique to the U.S. Treasury Department crying foul over U.S. regulations that reflected a "self-evident hostility" and a "discriminatory attitude" with regards to proposed Chinese investment.

"The openness and transparency of the U.S. trade regime have been key contributing factors to the efficiency that characterizes the U.S. economy. In the face of economic uncertainty, U.S. welfare would be best promoted by continuing to reduce barriers to market access and other distorting measures, including those that result from high levels of assistance in agriculture and energy," Sun Zhenyu, China's ambassador to the WTO said at a June 9 meeting.

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[…] A broad range of disputes have popped up between the United States and China over the past year including quality and safety issues concerning Chinese exports, China's relationship with countries such as Iran and the Sudan, as well as Beijing's opaqueness regarding its growing energy imports. […]

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